As the USA markets stumbled into action (after the long bank holiday weekend) it was the Canadian loonie that took centre stage in early FX trading, by reaching a low point versus the dollar not seen since 2009. Looking at the commitment of trader’s report of last week there did seem to be a ‘telegraphed’ message that the loonie was out of favour. And this view of the loonie seems to be supported by various analysts who are predicting that the BOC (bank of Canada) may have considered lowering its base rate. We’ll know soon enough as the publication of any rate setting policy change will be published on Wednesday, as will the monetary policy report for the BOC and the Canadian economy.
In other Canadian news manufacturing sales increased by 1% in November, the sixth straight advance in seven months, indicating that the economy is faring well with durable good sales up an impressive 2.9% month on month. Therefore the BOC may hold back on any base rate movement, or further monetary stimulus, during its meeting on Wednesday and simply weather the fall in the loonie. A fall in which is recognised as a good export stimulus, given that a cheaper loonie should equal cheaper goods for overseas importers.
The UK’s CBI published data in line with (their) expectations on Tuesday, manufacturing orders for the UK according to the CBI were the strongest since 2011, however, the CBI bases its data on a survey of clients, therefore their optimism may not be backed up by the colder and harder data published by the UK’s official stats body the ONS later this month.
Last week the UK mainstream media were full of optimistic stories regarding the retail sales increasing by circa 3.6%, casually ignoring the fact that retail sales in the months leading up to the Xmas and January sales were 0.3% and -0.7%. On Tuesday Moody’s released a report in which they suggested that UK food retailers will now begin to suffer as consumers in the UK may be all spent out with their Xmas shopping exertions.
The big dominant economic ‘news’ this week is the World Economic Forum being held at Davos which officially opened on Tuesday after various vested interests attempted to out muscle each other with their press releases and policy announcements ahead of the meeting.
The early news from the forum was generated by the actor, Matt Damon and the Catholic Pope. One pushing the agenda of water.org the other pushing for equality and fairness throughout the global economy. Both celebrities were given a rousing welcome, it won’t take long for the masters of our universe to quickly move on to their real purpose of shaping the economic status quo for their backers until next year’s forum.
Canada Monthly Survey of Manufacturing, November 2013
Manufacturing sales increased 1.0% in November to $50.5 billion, the sixth advance in seven months. With the latest rise, sales were at their highest level since December 2011. The increase in November largely reflected gains in the transportation equipment and machinery industries. Sales advanced in 11 of 21 industries, representing about 58% of manufacturing. For durable goods, sales rose 2.9% to $25.6 billion. Sales declined 0.9% on the non-durable goods side of manufacturing.
Canada Wholesale Trade, November 2013
Wholesale sales were unchanged in November at $50.4 billion. Lower sales in five sub-sectors, representing 63% of wholesale sales, were offset by higher sales in the motor vehicle and parts sub-sector and the food, beverage and tobacco sub-sector. Excluding the motor vehicle and parts sub-sector, wholesale sales declined 0.5%. In volume terms, wholesale sales were down 0.1%. The motor vehicle and parts sub-sector rose 2.5%, the largest change in dollar terms this November and its fourth increase in five months. Higher sales in the motor vehicle industry (+2.9%) accounted for most of the gain.
New UK manufacturing orders rise at their fastest rate since 2011 – CBI survey
Growth in new manufacturing orders was the strongest since April 2011, according to the latest CBI quarterly Industrial Trends Survey. In the three months to January 2014, domestic orders rose, uncertainty about demand fell and investment intentions for the year ahead picked up. The survey of 367 manufacturers found that growth in total order books and domestic orders was the most rapid since April 2011. Output growth remained solid, albeit slightly lower than that recorded in November and December. Manufacturers are optimistic about continued expansion in the next quarter.
UK food retailers face rough times – Moody’s
Britain’s food retailers are in for a rough quarter according to ratings agency Moody’s. In a report on the sector, analysts are picking Tesco and Morrisons as chains that could suffer from continued pressure on household finances.
Yasmina Serghini-Douvin, Moody’s analyst said:
[quote]We anticipate pressure on UK consumer spending to only ease in the latter part of the year as economic growth gradually improves. In the meantime, price conscious consumers will remain attracted to promotions and hard discounters, and are unlikely to increase their average spend. This is likely to result in downward pressure on many UK food retailers’ sales and margins for much of 2014.[/quote]
IMF sees higher global growth, but warns of deflation risks
The International Monetary Fund raised its global growth forecast for the first time in nearly two years. But the IMF warned richer nations were still growing below full capacity, adding that the spectre of deflation could derail the recovery. In an update to its World Economic Outlook report, the Fund predicted the global economy would grow 3.7 percent this year, 0.1 percentage points higher than its October projection.
Market overview at 11:00 PM UK time
The DJIA closed down 0.27% on Tuesday, the SPX up 0.28% and the NASDAQ up 0.68%. Europe’s bourses enjoyed a mostly marginal increase on the day, STOXX was flat, CAC up 0.02%, DAX up 0.15% and the FTSE down 0.04%.
The DJIA equity index future was, at the time of writing, down 0.26%, SPX future up 0.22%, NASDAQ future up 0.69%. Euro STOXX future is up 0.03%, DAX future up 0.-9%, CAC future up 0.02% and the UK future is down 0.05%.
NYMEX WTI oil finished the day up 0.66% at $94.99 per barrel whilst NYMEX nat gas exploded to the upside finishing up 3.20% on the day at $4.46 per therm. COMEX gold slumped by 0.81% on the day at $1241.80 per ounce with silver on COMEX slumping by 2.21% to finish under $20 per ounce at $19.86.
Forex focus
The dollar rose 0.1 percent to 104.30 yen on Tuesday after adding 0.6 percent, the biggest increase since Jan. 14th. The U.S. currency traded at $1.3561 per euro after adding as much as 0.3 percent. The 18-nation shared currency rose 0.2 percent to 141.43 yen. The dollar declined from a four-month high amid Treasury yields at an almost six-week low before the Federal Reserve meets next week to determine whether to continue scaling back stimulus.
The Dollar Spot Index, tracking the U.S. currency against 10 major counterparts, advanced 0.1 percent to 1,034.16 late New York time. It touched 1,037.75, the highest since Sept. 6th.
The Canadian dollar weakened to C$1.10 for the first time in more than four years amid signals that the Bank of Canada will continue to provide monetary stimulus as the Fed slows its own. The loonie fell 0.2 percent to C$1.0967 after touching C$1.1019, the lowest since September 2009.
The pound gained 0.2 percent to 82.31 pence per euro late London time after appreciating to 82.15 pence, the strongest level since January 2013. The U.K. currency rose 0.3 percent to $1.6471 after advancing to $1.6603 on Jan. 2nd, the highest since August 2011. The pound gained 0.2 percent to 82.31 pence per euro late London time after appreciating to 82.15 pence, the strongest level since January 2013. The U.K. currency rose 0.3 percent to $1.6471 after advancing to $1.6603 on Jan. 2nd, the highest since August 2011. The pound climbed to the strongest level in a year versus the euro after the International Monetary Fund boosted its growth forecast for the U.K. by more than any other Group-of-Seven nation.
Sterling has gained 8.7 percent in the past year, the best performer of 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro rose 6.1 percent and the dollar gained 4 percent.
Bonds briefing
U.K. government gilt bonds fell before the Debt Management Office sells 3.25 billion pounds ($5.35 billion) of 10-year gilts on Thursday.
Ten-year USA note yields were little changed at 2.83 percent late New York time, the second day below their 50-day moving average. Yields increased earlier as much as five basis points, or 0.05 percentage point, to 2.87 percent after dropping to 2.816 percent on Jan. 17th, the lowest level since Dec. 11th. The price of the benchmark 2.75 percent securities maturing in November 2023 declined 2/32, or 63 cents per $1,000 face amount, to 99 10/32.
Fundamental policy decisions and high impact news events that may affect market sentiment on January 22nd
Wednesday the first high impact news event of the day is the UK’s unemployment/employment numbers. The anticipation is for the claimant count to fall by circa 32K, with the percentage unemployment rate to fall to 7.3%. The UK’s BoE releases the votes for the previous base rate decision by the BoE’s MPC and the level of quantitative easing, both polices expected to have been maintained by majority votes. Average earnings in the UK are expected to have risen by 1.1%, up from the previous print of 0.9%. Whilst public net sector borrowing is expected to print at 12.3 billion for the month.
From Canada we receive the decision on the overnight base rate and the bank of Canada monetary policy statement and the rate statement. Thereafter the BOC will hold a press conference to explain all of these recent decisions.
As the day ends New Zealand publishes its business manufacturing index, last month’s reading coming in at 56.7. From Australia we’ll receive the latest inflation data, expected in at 2.1%.
The HSBC flash manufacturing PMI for China is published late Wednesday; the prediction is for a print of 50.6, only a tick lower than the previous month’s 50.7.
